Retirement Income

Employees could soon be paying for their own super

Employees could soon be paying for their own super

With compulsory superannuation contributions set to increase from 9.5 to 10 percent on July 1, 2021, most workers are expecting a big jump in their super payments.

But, some employment lawyers are warning that some bosses could be looking to avoid passing on the legislated increase in super to their workers.

Workers whose contracts state their super should be paid on top of their salary are safe, but those who have super included as part of their total package could be missing out.

This means it could be legal for employers to take the additional super out of their employees’ base pay.

“Provided the employees don’t drop below the minimum permitted wages in an award enterprise agreement, or the minimum wage, then yes, it is permitted,” said Fay Calderone, a partner at Hall & Wilcox.

Who’s doing it?

Ms Calderone also said she has received a number of queries from employers asking whether they have to pass on the increase.

She said large employers generally don’t deny workers super rises, with the four big consultancy groups - PwC, Deloitte, EY, and KPMG - proving that by publicly stating their workers will see a 0.5 percent increase to their total pay package.

But other employers may not pass on the increase according to Ms Calderone, and there’s a history of it.

“The businesses in the middle - where they are large enough where they’ve had their contracts prepared - they’ve had the history behind them where this has happened before,” she said.

Richard Denniss, Australia Institute’s chief economist, has also heard historical reports of this kind of behaviour, but has said it could be even worse this time around.

“There have been instances of this in the past, but I fear it’s becoming even more prevalent for the simple reason that more and more employees are on the kind of contracts that allow it to happen,” Mr Denniss said.

“Unfortunately, I think a bunch of smaller and medium sized businesses are feeling that they’re going to get away with it. That no one’s going to notice. And even if someone notices, no-one’s really going to care,” he said.

“But let’s be clear, if thousands of employers do this, that’s exactly why we don’t get wage growth in Australia.”

A survey of 145 organisations conducted by the firm Mercer found that 62 percent of the organisations using a “base plus” super model said they are maintaining their employees’ take-home pay, meaning the employer is covering the cost of the increase in super contributions without cutting their employees’ pay.

On the other hand, almost two thirds of organisations offering packaged super and salaries are only covering some of the cost of the super contribution increase.

Unions are outraged

This statistic has unions outraged, saying the 0.5 percent increase works out to cost less than $5 a week for most employers.

“It’s absolutely shocking to me that employers would be trying at this point to try and avoid paying that small increase in superannuation,” said ACTU President Michele O’Neil.

“This [the super rise] is something that is going to mean that for … the economy, and for our social security and pension system, we’ll be better off if people have enough money to retire on and retire without living in poverty.”

What this means

Wages have been stagnating for a long time already - and the pandemic making future pay rises seem unlikely - and data from the Treasury and Reserve Bank suggests a growth in wages won’t be seen anytime soon.

With this in mind, unions are arguing the super rises effectively replace a wage rise. They argue that employers choosing to not pass on increases isn’t within the spirit of the law.

Ms Calderone said “it’s a real conundrum at the moment” for employers deciding what to do.

“Employers are struggling … but we also know that many employees are living hand to mouth,” she said.

“So, employers need to balance what the financial consequences are going to be from passing on the pay reduction to employees, against the potential that those employees will go elsewhere.

“And then even if they do stay - because many employees will stay in this current environment - it’s a disengagement and the impact on morale.”

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